Last reviewed: 2 October 2026
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IRS payment plan (installment agreement) vs. offer in compromise: how the IRS describes each
An IRS payment plan, also called an installment agreement, is an agreement to pay the taxes you owe within an extended timeframe, and the IRS says to request one if you believe you will be able to pay in full within that time.[1] An offer in compromise allows you to settle your tax debt for less than the full amount you owe, and the IRS says it may be a legitimate option if you cannot pay your full tax liability or doing so creates a financial hardship.[2] This page sets the two side by side using only the IRS's own pages. It does not tell you which fits your situation or whether you qualify; that depends on facts only you, the IRS and a qualified tax professional can weigh. General information, not tax or legal advice.
The two options side by side
| Payment plan (installment agreement) | Offer in compromise | |
|---|---|---|
| What it is | An agreement with the IRS to pay the taxes you owe within an extended timeframe.[1] | Allows you to settle your tax debt for less than the full amount you owe.[2] |
| What the IRS says about when to consider it | "You should request a payment plan if you believe you will be able to pay your taxes in full within the extended time frame."[1] | "It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship." The IRS says to explore all other payment options before submitting an offer, and that the program is not for everyone.[2] |
| Types and eligibility | Short-term plan (pay in 180 days or less) or long-term plan (monthly payments). To apply online as an individual: for a long-term plan you owe $50,000 or less in combined tax, penalties and interest and have filed all required returns; for a short-term plan you owe less than $100,000.[1] If not eligible online, you may still be able to pay in installments by Form 9465, or by phone.[1] | You are eligible to apply if you have filed all required tax returns and made all required estimated payments, are not in an open bankruptcy proceeding, have a valid extension for a current-year return if applying for the current year, and, if you are an employer, made tax deposits for the current and past two quarters.[2] |
| How the IRS decides | Your specific tax situation determines which payment options are available.[1] | The IRS considers your unique facts and circumstances: ability to pay, income, expenses and asset equity. It generally approves an offer when the amount offered represents the most it can expect to collect within a reasonable period of time.[2] |
| Fees | Short-term: $0 setup fee. Long-term by direct debit: $29 online or $107 by phone, mail or in person. Long-term, other payment methods: $69 online or $178 by phone, mail or in person. Low-income setup fees are waived for direct debit or $43, which may be reimbursed. Changing an existing plan: $6 online or $89 otherwise; for low-income taxpayers, $6 online or $43 otherwise, which may be reimbursed if certain conditions are met.[1] Interest and penalties continue to accrue until the balance is paid in full.[1] | A $205 application fee (non-refundable) and a non-refundable initial payment with each Form 656. If you meet the low-income certification guidelines you do not have to send the application fee or the initial payment.[2] |
| Payments | Monthly payments for a long-term plan, or full payment within 180 days or less for a short-term plan.[1] | Lump sum: an initial payment of 20% of the offer with the application, and the rest in five or fewer payments after acceptance. Periodic payment: an initial payment with the application and then monthly installments while the IRS considers the offer, continuing if accepted until paid in full.[2] |
| While the IRS decides | With certain exceptions, the IRS is generally prohibited from levying while a request is pending, and the time to collect is suspended or prolonged.[1] | Your payments and fees are applied to the tax liability; the IRS may file a notice of federal tax lien; the IRS suspends other collection activities; your legal assessment and collection period is extended; and you do not have to make payments on an existing installment agreement.[2] |
| If it cannot be processed or is rejected | Cannot be processed: the payment plan page does not describe this case. Rejected: if a request is rejected, the collection period is suspended for 30 days. You can appeal a rejection or termination; the IRS says it will generally not take enforced collection actions for 30 days after a request is rejected or terminated, or while an appeal is evaluated.[1] | Cannot be processed: if the IRS cannot process an offer, it returns the application and fee and applies any offer payment to your balance. Rejected: if an offer is rejected you may appeal within 30 days using Form 13711.[2] |
| If it is approved | Keep meeting the plan's terms: pay at least the minimum monthly payment when due, file all required returns on time and pay taxes in full on time, and expect future refunds to be applied to the debt until it is paid. A reinstatement fee may apply if the plan defaults.[1] | You must meet all offer terms, including filing all required returns and making all payments. The IRS does not release federal tax liens until the offer terms are satisfied. Certain offer information is available for public review.[2] |
One more IRS rule that appears on the offer page: an offer is automatically accepted if the IRS does not make a determination within two years of the date it received it, a period that does not include any appeal.[2]
What the IRS says about not paying
- The IRS says that not paying taxes when due may cause the filing of a Notice of Federal Tax Lien and/or an IRS levy action.[1] See how the IRS collects a tax debt.
- The IRS says that if you cannot pay the full amount you owe, you should pay as much as you can; it also says it is always in your best interest to pay in full as soon as you can, to minimize additional charges.[1]
A separate IRS relief: penalties
Penalty relief is a different IRS process from either option above. The IRS says you may qualify for penalty relief if you tried to comply with tax laws but were unable due to circumstances beyond your control. The types are first-time penalty abatement and administrative waiver, reasonable cause, and statutory exception.[3] The IRS says you can follow the instructions in your notice, and some requests can be made by phone using the number on the notice, or in writing with Form 843.[3] The IRS also says it automatically reduces or removes related interest if it reduces or removes the penalties.[3]
Who to ask
- The IRS: individuals call 800-829-1040 for a payment plan, or the number on the notice or bill.[1]
- The IRS offers an Offer in Compromise Pre-Qualifier Tool to confirm eligibility and prepare a preliminary proposal.[2]
- For help you cannot get from the IRS directly, the IRS lists the Taxpayer Advocate Service, an independent organization within the IRS, and Low Income Taxpayer Clinics.[3]
- The IRS says to be sure to check the qualifications of any tax professional you hire to help file an offer.[2] Before paying a tax debt relief company, see our guide to tax debt relief companies.
How to verify this yourself
- Read the IRS's pages on payment plans,[1] offer in compromise[2] and penalty relief.[3] Fees, thresholds and procedures change; the payment plan page was last reviewed 13 August 2026 and the offer page 27 August 2026.
- Read the notice or letter the IRS sent you in full, and follow its instructions.
- Confirm eligibility with the IRS's own tools or by calling the number on your notice.
What this page does not cover
It does not say which option is better for any person, estimate whether an offer would be accepted, cover state tax debt (see how state tax debt collection differs), or cover credit-report effects, which the IRS pages we used do not address. It is not tax or legal advice. Our Standard checks companies that sell debt-relief services; this page is about the IRS's own programs, which are available directly from the IRS.
When we will update this page
We revisit it when the IRS changes the fees, thresholds or procedures above. Sources last read 2 October 2026.
What you can do next
- Find a company — see which specific US companies we checked and what we could verify.
- How we check — the rules and sources behind each result.
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- Report an error on this page or in a result.